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This Just In: Upgrades & Downgrades

Mom! JP Morgan won't play nice with Hasbro!

Editors' note: An earlier version of this article mistook Dreamworks Animation for Dreamworks Pictures. The Fool regrets the error.

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.

And speaking of the best ... One of the best analysts in the business has just issued a downgrade on one of the best-loved names in America: Hasbro (NYSE:HAS). On Tuesday, JPMorgan downgraded the toy maker's shares from "neutral" to "underweight."

Why does JPMorgan think you should sell? The reasons appear tied as much to other firms as to Hasbro itself. According to the bankers, Hasbro's immediate future relies on the success of movie makers DreamWorks Pictures and Marvel (NYSE:MVL), and their respective films, Transformers and Spider-Man 3. JPMorgan expects these exceedingly toy-friendly films to boost Hasbro's bottom line this year. Looking further down the road, though, JPMorgan sees fewer prospects for supercharged toy sales from the likes of Marvel offerings Wolverine and The Incredible Hulk sequel next year. In a forward-looking marketplace, JPMorgan therefore expects the shares to get bid down as the allegedly weaker slate of films looms on Hasbro's horizon.

Incidentally, Hasbro and Marvel are Motley Fool Stock Advisor recommendations, so it would seem that to the extent JPMorgan is wrong about the films' appeal, we will be proven right in recommending the stocks. Or vice versa. So today, we have more than a merely academic interest in the accuracy of JPMorgan's prediction. Speaking of which -- just how accurate is this bank?

Let's go to the tapeFor the answer, we turn once again to Motley Fool CAPS for a glimpse at JPMorgan's record. There we see that we've got a most worthy opponent on our hands. Profiled just last week as a strong stock picker with an 87.03 CAPS rating, JPMorgan has been on a tear the last few days, beating the market with its new picks about twice as often as it loses (admittedly, in the short term.) Still, fair is fair -- JPMorgan's CAPS rating now stands at a sterling 93.51, and it deserves credit for busting through the floor of the 10th percentile.

What kind of picks have JP picking up the pace? And which ones are still lagging? Picks like these:

JPMorgan says:

CAPS Says:

JPMorgan's Pick Beating (Lagging) S&P By:

Ness Technologies (NASDAQ:NSTC)

Outperform

****

2 points

Franklin Resources (NYSE:BEN)

Underperform

****

2 points

Wal-Mart (NYSE:WMT)

Outperform

**

1 point

National Semiconductor (NYSE:NSM)

Outperform

***

(2 points)

Foolish takeawayI must admit at this point that I'm a bit conflicted on Hasbro. On the one hand, the stock has done very well by our members at Motley Fool Stock Advisor, returning 119% gains over the four years since we picked it, and outperforming the S&P 500 by a good 43 points in the process. It's only natural to hesitate before panning such a great performer. But on the other hand, on CAPS, I personally have rated the stock a likely underperformer (a pick that, as of this writing, is just barely in the green for me) based on its valuation.

Today, I'm going to put my own CAPS score at risk by siding with the analysts at Stock Advisor and against JPMorgan. Why? Because when I rated Hasbro an underperformer, the stock traded for 18 times trailing free cash flow, but was expected to grow only 10% per year. According to Yahoo! Finance, Hasbro's growth estimate remains unchanged, but its valuation has dropped to 14 times free cash flow. At this price, the risk/reward ratio looks much closer to breakeven, and I would be leery of betting against the toy king.

Looking for a second opinion, or in this case, a third or fourth? Check out what the score leader for Hasbro, who's currently walloping the market with 50 points' worth of outperformance on her (his?) pick, has to say about the company. Visit Hasbro's CAPS page to learn the identity of this mystery stock picker.

And on your way out, don't forget to pick up a free 30-day trial to Stock Advisor. Read all about why Fool co-founder David Gardner initially recommended this stock in 2003, and check out his current thoughts on the company.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 696 out of nearly 30,000 rated players. Wal-Mart is an Inside Value recommendation. The Fool has a disclosure policy.

Author

I like things that go "boom." Sonic or otherwise, that means I tend to gravitate towards defense and aerospace stocks. But to tell the truth, over the course of a dozen years writing for The Motley Fool, I have covered -- and continue to cover -- everything from retailers to consumer goods stocks, and from tech to banks to insurers as well. Follow me on Twitter or Facebook for the most important developments in defense & aerospace news, and other great stories besides.